Uresti: School finance reform will require margins tax reform

The legality of the state's margins tax will be decided soon, and a separate trial is slated to begin Oct. 22 regarding Texas' school finance system. With both verdicts likely to face a lengthy appeals process, a judicial solution to Texas' school tax woes won't come anytime soon. In the op-ed below, Senator Carlos Uresti argues that lawmakers should not wait on the courts and address the issue in the next session of the Legislature by reforming the margins tax and creating a school finance system that is fair and equitable to all Texans.

The state of Texas is headed back to court this month for the latest round in a never-ending battle over public school finance. This time hundreds of public school districts, some charter schools, and a group of parents are challenging the state's method of funding our schools, alleging it is inadequate and inequitable.

The state's attorneys have their work cut out for them because, frankly, the plaintiffs appear to be waging this fight on solid ground.

The legal battle over public school funding in Texas has been raging on and off for more than 40 years. The so-called Robin Hood approach and revenue sharing by property-wealthy districts seemed to work at first, but soon became inequitable as well. It would be a stretch right now to call the system efficient, which is what the Texas Constitution requires.

While the lawsuit challenges the state's method of distributing property taxes, there will be another gorilla in the courtroom – the state's much maligned margins tax, which is facing its own court challenge as well.

There's no other way to say it: the state's attempt to provide tax relief to homeowners back in 2006 by swapping the franchise tax for the margins tax has been a monumental failure.

At the time, Comptroller Carole Keeton Strayhorn said lawmakers were writing the “largest hot check in Texas history.” I agree with here. The margins tax has repeatedly failed to keep up with the growing demands of public schools, creating an ongoing structural deficit that forced the Legislature in 2011 to slash school spending by almost $5 billion.

According to the Tax Foundation, the margins tax has always fallen short of initial revenue projections of almost $6 billion a year, due to its complexity, number of exclusions, and its sensitivity to downward economic trends. For example, the Foundation says more than 18,000 taxpayers that had paid the franchise tax had no liability under the margins tax.

I voted against the margins tax because it placed too large a burden on small businesses, caused severe cuts to our schools, harmed our ability to fund vital government services, such as maintaining our highways and bridges; and made it more difficult to balance the state budget.

The school finance lawsuit is scheduled to begin Oct. 22, and any ruling by State District Judge John Dietz will no doubt lead to a round of appeals, all the way to the Texas Supreme Court. A final ruling may not be in hand until after the next legislative session, which convenes in January.

In the past, the Legislature has waited on court orders before tackling public school finance. I believe we should not wait on the courts or apply another Band-Aid solution. We can no longer afford to kick the can down the road.

In the next session, I will work to fix our broken margins tax and take the pressure off small business by eliminating loopholes and requiring all businesses to pay their fair share.

The Legislature has no more important job than maintaining a fair and equitable public school system that provides every child with an opportunity to succeed. The fair part of that equation involves large and small businesses, industry, property owners, and even renters – anyone fortunate enough to call Texas home.

Everyone must share in the cost of schooling our children because everyone benefits from an educated workforce and an informed electorate. Come January, the Legislature should seize the moment, end decades of litigation, and enact a school finance system that Texans can finally be proud of.

Senator Carlos Uresti is a Democrat who represents State Senate District 19, which is based in San Antonio.